Equipment purchased 2 years ago by Newport Corporation to make pneumatic vibration isolators cost $99,500. It has a market valuethat can be described by the relation $99,500 - $8,400k, where k is the years from time of purchase. The operating cost for the first 5years is $59,000 per year, after which it increases by $6,400 per year. The asset's salvage value was originally estimated to be $7000after a predicted 10-year useful life. Determine the values of P, S, and AOC if (a) a replacement study is done now and it is assumedthat the equipment will be kept a maximum of one more year, and (b) a replacement study is done 5 years from now and it is assumedthat the equipment will be kept a maximum of only one more year after that.a)The value of Pis $The value of S is $The value of AOC is $1b)The value of P is $The value of S is $The value of AOC is $

Answered: Equipment purchased 2 years ago by…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Equipment purchased 2 years ago by Newport Corporation to make pneumatic vibration isolators cost $99,500. It has a market value
that can be described by the relation $99,500 - $8,400k, where k is the years from time of purchase. The operating cost for the first 5
years is $59,000 per year, after which it increases by $6,400 per year. The asset's salvage value was originally estimated to be $7000
after a predicted 10-year useful life. Determine the values of P, S, and AOC if (a) a replacement study is done now and it is assumed
that the equipment will be kept a maximum of one more year, and (b) a replacement study is done 5 years from now and it is assumed
that the equipment will be kept a maximum of only one more year after that.
a)
The value of Pis $
The value of S is $
The value of AOC is $1
b)
The value of P is $
The value of S is $
The value of AOC is $

Expert Solution

Step 1

The present value of an asset is the value of that asset today, taking into account the time value of money. It represents the present worth of a future amount of money, based on a given rate of return.

Salvage value is the estimated amount that an asset is worth at the end of its useful life. It is also known as "scrap value" or "residual value" and represents the value of an asset after it has been fully depreciated.

Annual operating cost refers to the expenses associated with operating an asset over a one-year period.

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